Importing from Brazil – good for business?

So, the party’s over, and the Brazil World Cup did not disappoint. The host nation, arguably football’s spiritual home and known for exciting, samba football, went in as one of the big favourites, but disappointed – or rather shocked – a nation with their 7-1 semi-final drubbing against eventual winners Germany. Spain, the 2010 champions (also on the list of favourites) went out at the first round, alongside 2006 winners Italy. And as for England, well, let’s not go there. Let’s just say that the government officials who dismissed England’s chances – a home office report assessing late-night drinking this summer said that’s there’s “high probability” they’ll be eliminated before the tournament reaches its “later stages” – got it right.

Still, those who travelled to Brazil will surely not have been deterred by this pessimism and subsequent England elimination. They no doubt went out there to make the most of a once in a lifetime experience, determined to enjoy Brazil to the full.

While those people may well have been checking the exchange rates before they left to see how many Brazilian real they’d get for their British pounds – and perhaps to see how many pints of beer they could buy! – plenty of British business owners already keep an close eye on the Brazilian economy and its currency to see how much their imports will cost.

In recent history, the Brazilian economy was affected by 30 years of spiralling inflation, and it was to reduce this that saw the introduction of the real in 1994, replacing the cruzeiro. When it was brought in, the real was supposed to have been fixed with the US dollar. At the end of the 90s, the currency was devalued to a rate of around 2:1 versus the dollar, before falling further still to 4:1 in 2002.

It since rallied and has, for the last few years, been hovering around the 2:1 mark. At the start of June this year the exchange rate was BRL 2.24 to USD 1.00.
It suffered a sudden devaluation to a rate of about 2:1 in 1999, reached almost 4:1 in 2002, then partly recovered and has been approximately 2:1 since 2006. The exchange rate as of December 31, 2013 is BRL 2.36 to USD 1.00.

Over the last three years, the pound has more or less been on a continuous climb against the real. In the middle of 2011, GBPBRL was at 2.50, with £10,000 spending money getting you BRL 25,000. In February this year, the exchange rate was tipping 4.00, with that same amount of pounds getting you BRL 40,000 – not far off twice as much. However, since then, the GBPBRL has fallen away a little, and at the start of June, the rate was 3.75.

Amongst the major goods that Brazil exports are coffee, sugar, Brazilian nuts, transportation equipment, iron ore, steel, soybeans, footwear, motor vehicles, concentrated orange juice, beef and tropical hardwoods. For businesses importing such products from Brazil, the exchange rate is key. In the short term, it’s not a great time from British businesses buying BRL – GBPBRL is now, when it was over 4.00 in mid-February and at the end of January. But considering the recent weakness of the real, importing from Brazil still proves a viable option for those looking to reduce costs.

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